Implementation of the WACC Notice and challenges in determining the VHCN risk premium

In 2019, the European Commission published the WACC Notice that sets out a methodology for estimating the weighted average costs of capital (WACC) used by national regulatory authorities in the cost regulation of the telecommunication sector. The Notice is explicitly limited to legacy infrastructure and does not address Very High Capacity Networks. The Commission's Recommendation on the regulatory promotion of gigabit connectivity advises that NRAs may apply a VHCN risk premium in addition to the applicable WACC, but provides less methodological guidance for its calculation. This paper provides an overview of current regulatory practices for determining the WACC for both legacy networks and VHCNs in Europe. It examines the implementation of the WACC Notice across Member States, assessing its impact and identifying notable deviations from the prescribed methodology. It further examines Member States' approaches to determining a risk premium for VHCN investments. The analysis draws on an extensive literature review and interviews with five national regulatory authorities. Findings indicate that the WACC Notice has largely standardised the methodology for calculating the regulated WACC for legacy infrastructure, although differences remain in the frequency of WACC updates. Overall, WACC values across Member States have declined since the Notice's introduction. Several NRAs adjusted their methodology for calculating the risk-free interest rate between 2022 and 2024, placing greater weight on more recent data in order to reflect macroeconomic developments. By 2025, most NRAs returned to the methodology of the WACC Notice, as the 5-year average better reflects prevailing interest rates. In contrast, only a few Member States calculate a VHCN risk premium, and no standardised methodology exists. This results in substantial differences in VHCN risk premiums both in absolute terms and relative to legacy WACC. Additional risks for VHCN investments vary by national market conditions and primarily arise from the lack of established infrastructure compared to legacy networks. These risks are expected to diminish over time.